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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
ORDER Per Shri A.T.Varkey, JM
This is an appeal filed by the revenue against the order of Ld. CIT(A)-3, Kolkata dated 14.05.2018 for AY 2014-
1. 1.
2. Ground no. 1 of revenue’s appeal is against the action of Ld. CIT(A) in allowing the ESOP expenses of Rs.65,19,000/-.
The issue is regarding deletion of disallowance of additional ESOP expenses of Rs.65,19,000/-. Facts of the case as per the AO are that he has made the disallowance on the ground that the above expenses have not been debited in the books of account and hence not allowable. Aggrieved, assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee contended that the issue is covered by the decision of the Special Bench of the Tribunal in the case of Biocon Ltd. Vs. DCIT 35 taxmann.com 335 and also by the decision taken by the predecessor Ld. CIT(A) in assessee’s own case for AY 2013-14. After considering the submissions, the Ld.
Magma Fincorp Ltd. AY 2014-15 CIT(A) was of the opinion that the claim for deduction of Rs.65,19,000/- on account of ESOP expenses is allowable. Therefore, he deleted the addition of Rs.65,19,000/- as made by the AO. Aggrieved, revenue is before us.
Before us, the Ld. DR vehemently relied on the order of AO and contended that the allowability of ESOP expenditure has not attained finality from the Hon’ble Apex Court. Hence, he urged before the bench to set aside the order of the Ld. CIT(A) and restore that of the AO. Per contra, the Ld. Counsel for the assessee submitted that the issue in respect of the assessee’s claim on account of ESOP expenses during the relevant assessment year stands squarely covered by the decision of Special Bench of the Tribunal in the case of Biocon Ltd. Vs. DCIT reported in 35 taxmann.com 335 and also by the decision of this Tribunal in assessee’s own case for the AY 2013-14 in dated 07.12.2018, so he urged before the bench to dismiss the appeal of revenue on this score.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the issue is regarding deletion of disallowance of additional ESOP expenses of Rs.65,19,000/-. We note that this issue stands squarely covered by the decision of Special Bench of the Tribunal in the case of Biocon Ltd. Vs. DCIT reported in 35 taxmann.com 335 and also by the decision of this Tribunal in assessee’s own case for the AY 2013-14 in dated 07.12.2018. Since the Ld. DR is unable to controvert this fact, we are of the considered opinion that the issue is squarely covered by the decision of Special Bench of the Tribunal in the case of Biocon Ltd. Vs. DCIT reported in 35 taxmann.com 335 and also by the decision of this Tribunal in assessee’s own case for the AY 2013-14 in ITA No. 946/Kol/2017 dated 07.12.2018 (supra). We also note that the Ld. CIT(A) has also given relief to the assessee by relying on the decisions cited supra. Since this issue is squarely covered in favour of the assessee, we dismiss the ground of appeal of the revenue and confirm the action of the Ld. CIT(A) in this regard. Revenue’s ground of appeal is dismissed.
Magma Fincorp Ltd. AY 2014-15 6. Ground no. 2 of revenue’s appeal is against the deletion of addition made by AO to the tune of Rs.1,97,06,000/- towards exchange loss. Briefly stated the facts as observed by the AO are that he noted from the computation of income of the assessee that the assessee has reduced an amount of Rs.197.06 lakhs on MTM profit on derivative contract from the computation of income. According to AO, the assessee in its reply dated 27.07.2016 referred to the Board’s Instruction No. 3/10 dated 23.03.2010 and contented that the profit should be treated as notional profit only and shall not be taxable. The AO examined the submissions of the assessee and found it to be untenable. He, therefore, held that the MTM profit on derivative as income of the assessee. According to AO, the difference, loss or gain arising on conversion of the outstanding liability at the closing rate should be recognized in the profit and loss account for the reporting period which has been duly recognized by the assessee but in the computation of income the MTM profit have been deducted which, according to him, is against the decision of Hon’ble Supreme Court in the case of CIT Vs. Woodward Governor India (P) Ltd. (2009) 179 Taxman 326 (SC). In view of the above, deduction of Rs.1,97,06,000/- claimed by the assessee in its computation of income was disallowed by the AO and added back to the total income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who deleted the addition as made by AO by observing as under: “The issue is regarding the addition of Rs.1,97,06,000/- on account of notional income of marked to market provision reversed. Further the appellant has relied on the decision taken by my predecessor in appellant's own case for the assessment year 2013-14 in Appeal No. 2210/CIT(A-3/C-8( I )/20 15-16 order dated 20.02.2017, the observation of my predecessor is as follows: “14. I have considered the facts of the case, assessment order, the remand report and the other material brought on record. The assessing officer had disallowed an amount of Rs. 283.30 lacs shown as negative figure under note 24 as finance cost arriving out of derivative transactions. The reason given for disallowance was that in absence of details for transactions, it could not be denied that the transactions were related to the business of the assessee. However the appellant has explained that the amount reduced this year was actually related to the reversal of entry in the previous year. During the year ended on 31. 03. 2012 the assessee had a MTM loss on reinstatement of hedging transactions of Rs. 522.68 lacs which had been claimed in the books of accounts. At the time of filing of return for A. Y 2012-13 the said amount was added back while computing returned income. As on 01.04.2012 in the books the said loss of Rs. 522.68 lacs had been reversed and therefore appeared an income side. Also Magma Fincorp Ltd. AY 2014-15 as on 31.03.2013 [here was MTM loss of Rs. 239.38 which appeared as expenditure in the books. While filing of return for the year, the appellant reversed both the entries resulting in net reduction of Rs. 283.30 lacs. The appellant has produced copy of computation of income for both the years to support its contention. Thus it can be seen that the deduction is on account of reversal of entry which had been considered as part of income in A. Y 2012-13. Considering this, there is no justification in adding back to the amount of Rs. 283.30 lacs. The addition of Rs. 283.30 lacs is accordingly deleted. It is observed that in this case the appellant offered to tax a sum of Rs. 522.86 lacs on account of reversal of MTM provision in AYr 2012-13. The said loss was reversed in the last assessment year to the extent of Rs. 2,83,30,000/-. The figure for the impugned year is Rs. 1.97,06,000/-. This profit is notional in nature. Further, the amount of Rs. 2,83,30,000/· was allowed in Ayr. 2013- 14. Respectfully following the same the addition made by the AO of Rs. 1,97,06,000/- is hereby deleted.”
Aggrieved, revenue is in appeal before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that this issue is covered in favour of the assessee in assessee’s own case for the AY 2013-14 in dated 07.12.2018 (supra) and the Ld. DR could not point out any change in facts or law which would have warranted any interference on the part of us. In the absence of the same, we note that the issue under dispute had been dealt elaborately by the Ld. CIT(A), supra which we agree and thus in our considered opinion, does not call for any interference. Accordingly, this ground of revenue is dismissed.
In the result, the appeal of revenue is dismissed.
Order is pronounced in the open court on 28th February, 2020